Huge opportunity for private builders in new state house policy, says English

Finance Minister Bill English is urging infrastructure and construction firms to recognise opportunities to build the next generation of state houses as he predicts reforms that kick in mid-month will make the government the largest player in the medium density housing market.

Describing the housing policy changes as "the biggest change in state housing since it was invented", but which had attracted "almost no attention", English told attendees at the annual investor day for NZX-listed infrastructure specialist Infratil there was a large cohort state house tenants who were keen to move because their current state house no longer met their needs.

Older state house tenants represented a major opportunity.

"There's been very little understanding of this group," said English. "For the first time in 50 years we've gone and asked them whether they do want to be in a state house for life and quite a few of them said 'no'.

"They don't like being in three bedrooms on quarter of an acre in a street where people have loud cars and parties.

"There's room for a product, not a gold-plated Ryman (retirement village) product, for around 15,000 tenants in some kind of medium density communal living.

"We could have Housing Corp do that and it would be a long, slow process or we could have a market compete to provide that product, which could allow us to free up a large part of our stock relatively quickly," said English.

One of the implications of that policy was that "one way or another, the government becomes the main buyer of medium density housing in all New Zealand metro markets."

"We would hope not to be taking the development risk, because we don't know anything about development and its commercial and economic dimensions," he said.

The government would be looking to provision by companies with property development experience rather than the Housing Corporation, in a process that was likely to lead to writedowns on the value of some of the current $17 billion of state housing stock.

"We're starting a price discovery process and that's going to tell us some things about prices that we don't want to know, but we'll have to face up to them," English said.

On housing policy generally, English said there was another three to four years work in "chipping away" at the reasons behind New Zealand's "choice" to have a "very expensive housing market."

While there would be headlines about foreign buyers being a factor in high house prices, they were a distraction, English said.

"In the end, it's a political and regulatory problem and the solutions are all a bit complex. Demand side focus is a distraction from the underlying supply side issues and the related infrastructure issues."

Housing affordability remained a critical issue for three reasons. Firstly, if house prices kept rising at recent rates, interest rates would have to increase even more aggressively than had already been signalled.

Secondly, the debt burden carried by middle class families would see more demands for assistance of the kinds established in the mid-2000s, when house prices and interest rates were high, such as interest-free student loans, expanded early childhood education subsidies, and Working for Families.

"You can argue that (such policy) was driven by the housing market - middle class households who couldn't meet the cost of housing and the government had to subsidise it," English said.

And thirdly, the gap between those who can and can't afford to buy a home has become a growing contributor to inequality.

(BusinessDesk)